Transcript of Middle East and Central Asia Press Briefing
IMF News, April 21, 2017
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- Published: April 21, 2017
Regional outlook: MENAP (Middle East, North Africa, Afghanistan, and Pakistan)
- A more favorable global environment—including higher expected growth and some firming of commodity prices—is providing some breathing space for the MENAP region.
- Non-oil growth for the MENAP oil exporters:
- Expected to accelerate from 0.4 percent in 2016 to 2.9 percent in 2017.
- Headline growth reduced by production cuts following the OPEC agreement.
- MENAP oil importers:
- Headline growth projected to increase from 3.7 percent in 2016 to 4 percent in 2017.
- Medium-term growth projections are described as too low to create enough jobs or improve living standards.
- Major regional social and humanitarian context:
- An estimated 10 million refugees and twice as many displaced people are affecting countries in the region.
Fiscal position and consolidation priorities
- Fiscal deficits and debt levels:
- Fiscal deficits for oil exporters were 10 percent of GDP last year, but are expected to fall below 5 percent this year, in part due to higher oil prices.
- Oil importers deficits expected to drop from 7.2 percent in 2016 to 6.6 percent in 2017.
- Many countries—especially oil importers—carry average debt levels of about 80 percent of GDP.
- Policy imperatives for both oil exporters and importers:
- Fiscal consolidation and structural reforms.
- Recommendations include:
- Consolidate at a pace appropriate to each country and as growth friendly as possible.
- Give priority to productive spending (education, technology and innovation, health care).
- Protect the poor and vulnerable (examples: takaful and Karama programs mentioned for Egypt).
- Reduce exemptions and expand the tax base to make reforms fairer and more inclusive.
- Noted policy measures already adopted in some countries:
- Plans for a value-added tax in the GCC countries.
- Streamlining current spending in Algeria and Oman.
- Energy subsidy reform.
Structural reforms and diversification
- Structural reform objectives:
- Diversify economies, spur private sector-led growth, boost competitiveness and productivity.
- Generate jobs for millions of new jobseekers expected to enter the labor force over the next five years.
- Country-specific implementation focus:
- For countries with plans (example: Saudi Arabia), the emphasis is on implementation.
- For the Caucasus and Central Asia (CCA), plans developed by Georgia and Kazakhstan are encouraged to be implemented to diversify away from commodities and remittances.
- Tunisia and Jordan: emphasis on stabilization plus recovery through reforms that improve business environment, financial sector reform, and support for small and medium enterprises to boost inclusive growth.
Caucasus and Central Asia (CCA) — outlook and financial sector risks
- Growth forecast:
- Growth for the CCA is forecast to increase from 2.4 percent in 2016 to 3.1 percent in 2017.
- Key vulnerabilities:
- Recent shocks have left the region with higher debt and weaker financial sectors; medium-term growth outlook remains subdued.
- Financial sector concerns:
- With few exceptions, restructured and overdue loans have increased further.
- Banks remain undercapitalized.
- These weaknesses are a drag on growth and pose a risk to public finances.
- Policy guidance:
- Carefully consolidate fiscal positions—too much consolidation could hurt growth; too little could undermine fiscal sustainability.
- Urgent need for financial repair and bank recapitalization where required.
- Continue structural reforms to improve business environment and legal frameworks.
IMF engagement, programs, and capacity building
- IMF financial support and program activity in the region:
- Providing financial support to 10 countries in the region, including new arrangements for Egypt and Georgia (Board approval noted).
- Egypt: Board agreed to grant a $12 billion loan; first tranche disbursed.
- Program timeline note for Egypt: program was approved in 2016 and "is running for six months now"; described as a "three years' program".
- Advisory and technical assistance highlights:
- Advice and analytical work on energy price reform in the Arab countries and structural priorities in the GCC.
- Capacity building: anti-money laundering in Afghanistan; introduction of a new currency in Somalia; development of the value-added tax in the GCC.
- Plans for a conference in early 2018 aimed at identifying ways to boost inclusive growth in the MENA region.
- Programs tailored for conflict-affected countries:
- Lending arrangements tailored to help countries cope with humanitarian and economic costs of conflict.
- IMF working with partners to mobilize broader international support.
Country Q&A highlights and policy notes
- Egypt:
- Program approved in 2016; six months of implementation noted.
- Priority: bring inflation down from 30 percent further down; monetary instruments (interest rates) are emphasized.
- Debt sustainability is a main priority; program design aims to progressively bring down the level of debt.
- Social protection measures included (takaful and Karama) to protect low-income groups during subsidy removal.
- Second tranche disbursement timing: will depend on completion of the program review; a mission expected "probably by end of April or so" to finalize the review (no firm disbursement date given).
- Program described as having brought strong confidence, translated into strong capital inflows and stabilized the situation.
- Sequencing: prioritize inflation reduction before pursuing some additional fiscal measures; program is three years' duration.
- Bahrain:
- Observations: FX reserve levels reported as "down below $2 billion" and said to cover "less than two months" of (unspecified) import cover.
- Bahrain, like other GCC countries, was hit hard by the drop in oil price; buffers are lower for some countries.
- Policy advice: pursue fiscal consolidation; authorities have tapped markets successfully with sovereign bond issuances.
- IMF keeps dialogue open with Bahraini authorities.
- Iran:
- Iranian economy recovered in 2016 mainly from oil sector; ability to raise oil production and exports aided growth in 2016.
- 2017 growth expected to come from the non-oil sector, conditional on speed of structural reforms, financial sector reform, fiscal management, and improvements to the business environment to increase foreign investor access.
- Tunisia:
- Recent IMF mission finished with a satisfactory outcome.
- Emphasis on key reforms to address public finance (high deficit) and the growing trade deficit.
- IMF is not recommending outright floating of the Dinar; instead recommends managing the currency in a way to address deficits and preserve stability.
- Monetary and fiscal measures are presented as complementary instruments; objective is stabilization and recovery, with focus on enabling growth and job creation.
- Communication strategy is noted as the authorities’ responsibility, not the IMF’s.
- Lebanon:
- IMF mission in Beirut reviewed measures to reduce deficit and addressed refugee impacts on fiscal and economic fronts.
- IMF encourages accelerated deficit reduction to achieve primary surpluses sufficient to stabilize and reduce debt-to-GDP.
- Recommendation includes using prudential monetary policy tools, including gradual interest rate increases if necessary, given rising global interest rates and dollar appreciation risks.
- Jordan:
- Refugee burden is a major economic challenge; limited benefit from trade with neighbors compounds difficulties.
- IMF-supported program focuses on revenue base expansion and fiscal reforms while protecting vulnerable groups.
- Recommendations include gradually eliminating tax exemptions to broaden tax base (with attention to protecting basic food subsidies and vulnerable populations).
- Emphasis on enabling private sector-led growth and support for small and medium enterprises to create jobs and boost inclusive growth.
Risks and external factors
- Global risks identified:
- Potential U.S. tax reform and appreciation of the dollar could pose risks to CCA countries with dollar-denominated debt.
- Ongoing rebalancing of the Chinese economy could lower demand for raw materials and metals, weighing on exports of commodity-dependent countries.
- Policy response emphasis:
- Use improved global conditions in 2017 to accelerate reforms: structural reforms, financial-sector repair, fiscal consolidation, and economic diversification.
- Leverage initiatives such as One Belt One Road and increased Chinese activity where possible to benefit regional growth.
Transcript of Middle East and Central Asia Press Briefing — Washington, D.C., April 21, 2017